Oil rises to four-month high as investor confidence increases

Oil increased to a four-month high as German investor confidence climbed more than economists expected and a Bloomberg survey showed that international optimism about equities gained.

Futures rose 0.7% after Germany’s ZEW Center for European Economic Research said its index of investor and analyst forecasts climbed to 31.5 from 6.9 last month. Global investors are the most bullish on stocks in at least 3-1/2 years, with almost two-thirds planning to boost holdings during the next six months, a Bloomberg survey showed.

“We’re seeing a slow steady return of confidence in the economy,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “There’s been a return of bullish sentiment to almost all markets.”

Crude oil for February delivery rose 68 cents to $96.24 a barrel on the New York Mercantile Exchange, the highest settlement since Sept. 17. February futures expired today. The more-active March contract gained 64 cents to settle at $96.68.

Yesterday’s transactions in New York will be booked with today’s trades for settlement purposes as there was no floor trading because of the Martin Luther King Jr. Day holiday.

Brent oil for March settlement gained 71 cents, or 0.6%, to $112.42 a barrel on the London-based ICE Futures Europe exchange.

The European benchmark traded at a $15.74 premium to West Texas Intermediate crude futures traded in New York. The spread was $15.16 on Jan. 17, the narrowest level based on closing prices since July 24.

Narrowing Spread

The spread has shrunk since Enterprise Products Partners LP and Enbridge Inc. resumed service of the Seaway pipeline running from Cushing to the Gulf Coast on Jan. 11 at a capacity of 400,000 barrels a day, up from 150,000 barrels. The link provides an outlet for record supplies in the central U.S.

“The improvement of the economy is helping WTI, along with the continued narrowing of the Brent spread,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion. “As new lines open up, relieving the bottleneck in the middle of the country, WTI will gain strength.”

The ZEW index, which aims to predict German economic developments six months in advance, climbed to the highest level since May 2010 and showed the biggest gain in 11 months. Economists forecast an increase to 12, according to the median of 39 estimates in a Bloomberg survey.

“We’re getting a boost from increasing investor confidence both in Germany and, as a Bloomberg survey shows today, in the rest of the world,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “There should be an increasing investment flow, boosting prices.”